Tag Archives: renting

Housing Affordability for Moderate-Income Households

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The Center for Housing Policy’s most recent issue of Housing Landscape gives its Annual Look at The Housing Affordability Challenges of America’s Working Households. The Center finds that

Overall, 15.2 percent of all U.S. households (17.6 million households) were severely housing cost burdened in 2013. Renters face the biggest affordability challenges. In 2013, 24.3 percent of all renter households were severely burdened compared to 10.0 percent of all owner households. (1, footnote omitted)

The Center summarizes “the severe housing cost burdens of low- and moderate-income working households.” (1) Unsurprisingly. these households face

significantly greater affordability challenges than the overall population. In 2013,21.2 percent of working households were severely cost burdened (9.6 million households).Twenty-five percent of working renters and 17.1 percent of working homeowners paid more than half of their incomes for housing that year. (1)

The report notes some modest good news:

Since 2010,the overall share of working households with a severe housing cost burden has  fallen.This modest decline is the result of a complex combination of factors, including the shift of  some higher-income households from homeownership into rental housing. An insufficient supply of rental housing and sustained increases in rents have led to millions of working households having to pay too much for housing or live far from their jobs, in substandard housing,or in poor-quality neighborhoods. (1)

Federal and local housing policy has not yet come to grips with the fact low- and moderate-income households have been paying a significant portion of their income in housing costs year after year. Household have to make difficult trade-offs among cost, distance from employment, housing quality and neighborhood quality.

The Center notes that more can be done to support affordable housing at the federal and state levels, but it is not clear to me that there are any politically feasible policy responses that can make a serious dent in the affordability of housing for working households.

Tax Expenditure Wars: Wealthy Households v. Poor

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Henry Rose has posted How Federal Tax Expenditures That Support Housing Contribute to Economic Inequality to SSRN. This short article examines “how federal income tax laws benefit more affluent owner households but provide no benefits to economically-strapped renter households.” (1) Housing policy analysts (myself included) constantly bemoan the regressive nature of federal tax policy as it relates to housing, but it is always worth looking at the topic with updated numbers. And this article contains some tables with some interesting numbers.

One table provides an overview of the estimated tax savings (in billions) in FY 2014 for five federal tax expenditures for owners of housing that they occupy:

Mortgage Interest Deduction  (MID)                                                 $66.91

Property Tax Deduction (PTD)                                                        $31.59

Capital Gains Exclusion on Sales                                                   $35.54

Net Imputed Rental Income Exclusion                                            $75.24

Discharge of Mortgage Indebtedness Exclusion                            $3.1

Total                                                                                                 $212.38

The next table provides an estimated distribution of two of these tax expenditures (FY 2014, savings in millions):

Tax-Filer AGI                PTD Tax Savings         MID Tax Savings                

Below $50,000              $693                              $1,443

$50,000-75,000             $2,190                           $4,330

$75,000-100,000           $3,478                           $6,581

$100,000-200,000         $13,648                         $27,421

$200,000+                     $11,798                         $29,340

Total                              $31,806                         $69,115                               

The article concludes by noting that despite

the great disparity in economic positions between owners and renters, federal tax expenditures lavish tax savings on primarily affluent owners and provide none for renters. The federal tax expenditures for owners are so generous that interest can be deducted on mortgage balances up to $1,000,000 and can also be taken on second homes, even yachts, as well as primary residences. It is difficult to conceive of a federal public policy that more directly promotes economic inequality than the federal tax expenditures that support owners of housing but are not available to renters. (9-10, footnote omitted)

I don’t expect this disparity to be addressed any time in the near future, given the current political environment, but it is certainly one that should stay at the top of any list of reforms for those concerned with promoting equitable federal housing policies.

Nation of Renters

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NYU’s Furman Center and Capital One have produced an interesting graphic, Renting in America’s Largest Cities. The graphic highlights the growing trend of renting in urban communities, but also the increasing expense of doing so. The press release about this study provides some highlights:

  • In 2006, the majority of the population in just five of the largest 11 U.S. cities lived in rental housing; in 2013, that number increased to nine.
  • As demand for rental housing grew faster than available supply, rental vacancy rates declined in all but two of the 11 cities, making it harder to find units for rent.
  • Rents outpaced inflation in almost all of the 11 cities. Rents Increased most in DC, with a 21 percent increase in inflation-adjusted median gross rent, and least in Houston, where rents were stable.
  • In all 11 cities, an overwhelming majority of low-income renters were severely rent-burdened, facing rents and utility costs equal to at least half of their income.
  • Even In the most affordable cities in the study, low-income renters could afford no more than 11 percent of recently available units.
  • In five major cities, including New York, Los Angeles, San Francisco, Boston and Miami, moderate-Income renters could afford less than a third of recently available units in 2013.

Rental housing clearly has an important role to play in providing stable homes for American households, particularly in big cities. While rental housing has been the stepchild of federal housing policy for far too long, it is good that it is finally get some attention and resources.

I look forward to the Furman Center’s follow-up report, which will provide more detail than the graphic does. I am particularly curious about whether the researchers have addressed the difference between housing affordability and location affordability in the longer study. I would guess that the relative affordability of the cities in this study is greatly impacted by households’ transportation costs.

Reiss on “Generation Rent”

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MSN Real Estate quoted me in ‘Generation Rent’ trend changes the housing game.

Tougher lending requirements, a transient lifestyle and seeing mortgages throw their
parents’ finances in turmoil are causing more millennials to rent instead of buy a
home.

“This attitude shift on homeownership and the rise in demand for rentals is directly influencing the growth of private firms looking to fill out real estate portfolios as well as property management groups that have scooped up business from investors who have no interest in the day-to-day of being a landlord,” said Don Lawby, president of Real Property Management in Utah.

Some 82% of consumers believe owning a home is a critical part of wealth building but 18% said they are not willing to assume the risk of a mortgage, according to a National Foundation for Credit Counseling (NFCC) survey.

“The unwillingness to take on a mortgage loan may be a smart decision for some, as many borrowers have learned the hard way that homeownership does not come with a guarantee of continually increasing equity,” said Gail Cunningham, spokesperson with the NFCC.

The “Generation Rent” phenomenon is not just about younger Americans. As a societal shift has slowly emerged to redefine the American Dream, many older Americans with empty nests are also exploring apartment living.

“Apartments are a maintenance-free alternative to single-family homes and retirement communities,” said Abe Tekippe, a spokesperson with Waterton Associates, a national apartment investor and operator. “They also allow residents to move closer to shopping, dining and entertainment venues, making them more accessible to aging Baby Boomers.”

For many years, homeownership was a policy objective of the federal government, which symbolized a level of achievement for a person or family but these days many are taking a closer look at whether the costs and benefits of home ownership outperforms the cost of renting.

“People are realizing that coming up with funds and motivation each month for maintenance and up-keep isn’t feasible for economic, medical, lifestyle or other
reasons,” said Dillon Baynes, co-founder and managing partner with Columbia Ventures in Atlanta.

If generation rent continues, a slow down in home sales is bound to have a ripple effect. “If renting remains a popular choice, it will certainly have an impact on the broader economy starting with the home building industry,” said David Reiss, professor with Brooklyn Law School.

“There would be a move away from single-family construction to multi-family.”